2016 CA Summit - Enhancing California's Role as a Global Crossroads for Trade and Investment

Economic Status and Trade Volume

• California is the sixth largest economy in the world, fluctuating between the eighth and sixth positions based on currency values.
• The state is the second largest exporter in the United States, having slipped behind Texas in 2001.
• Over 40% of all container goods shipped to the U.S. pass through California ports, approaching 50% when including both Northern and Southern regions.
• Only 1 in 20 small and mid-sized businesses (SMBs) are regular exporters, while 1 in 10 are directly connected to exports and 1 in 5 indirectly connected.
• California has the most active Small Business Administration (SBA) lending market in the country (Region 9) and Los Angeles County is the single busiest small business center in the U.S.

Export Strategy and Government Programs

• The SBA's STEP (State Trade Expansion Program) generates a $17 return on investment (ROI) for every dollar invested by sending SMBs to trade missions.
• Small businesses defined by the SBA constitute 90% of the Export-Import Bank's (Ex-Im Bank) customer base.
• Federal procurement goals for SMBs were exceeded in the most recent cycle, rising from a 23% target to a realized 25.75% of federal spend.
• A new SBA rule change now counts federal department spending abroad in the numerator of the SMB procurement goal, encouraging supply chains to move globally with agencies.
• The Trans-Pacific Partnership (TPP) includes a dedicated SMB chapter to help small businesses resolve disputes and set standards, which the Obama administration is actively urging for passage.
• The Ex-Im Bank offers credit insurance covering 90% to 95% of overseas receivables, allowing SMBs to sell on open accounts (30–180 day terms) to developing markets.

Target Demographics and Innovation

• Immigrant populations from over 20 countries in California serve as key bridges for export connections and foreign direct investment.
• Veterans are identified as a prime demographic for exporting due to their prior overseas postings and understanding of global markets; specific examples include a marine veteran leading a methane-to-energy company in Orange County.
• Large corporations increasingly rely on M&A (Mergers and Acquisitions) to acquire small, innovative businesses to access agility and technology they cannot develop internally, exemplified by SpaceX sourcing from multiple small firms.
• The SBA's SBIR (Small Business Innovation Research) program provides grants of $200,000 to $400,000 for Stage 1 and up to $1 million for Stage 2 for government-responsive technology.
• California is projected to lead in clean technology exports, specifically renewable energy (wind, solar) and battery technology, driven by high demand in markets like Argentina.

Technical Assistance and Risk Mitigation

• Bank of America Merrill Lynch provides technical assistance through automation and fintech tools, such as supply chain programs that allow clients to liquidate receivables or get paid earlier.
• Ex-Im Bank and SBA guarantees allow banks to lend up to 90% of the loan value for export purposes, significantly reducing barriers for marginal exporters.
• U.S. Export Assistance Centers, SBA district offices, and commercial officers in 70–75 global embassies serve as primary hubs for market navigation and risk education.
• Credit card fraud liability has shifted to small businesses for transactions processed via magnetic strip cards; the adoption of EMV chip readers transfers this liability back to the card issuers.
• The recent bankruptcy of the Korean shipping company Hanjin highlighted the need for risk mitigation tools like bonds and flexible shipping arrangements to handle unexpected insolvencies.

Regional Trade Dynamics and Challenges

• Canada is California's second-largest export market (after Mexico), with over one million California jobs directly linked to trade with Canada.
• Southern California hosts an estimated half-million to one million Canadian expatriates, facilitating strong business ties and tourism-driven economic activity.
• Approximately 1% to 2% of exports face strict national security restrictions; the Commerce Department is actively reducing the scope of these restrictions on a regular basis.
• Global trade is shifting from a "local market first" model to a "global strategy from the start" approach among modern companies.
• The U.S. was the world's number one exporter in 2002 but has since slipped to second place behind China, prompting urgent debate over trade agreements like the TPP versus the Chinese-led RCEP.
• The SBA has established 21 bilateral agreements in the Western Hemisphere to connect U.S. SMBs directly with local entrepreneurs in countries like Colombia and Argentina.